Rein In Solar Subsidies, Power Companies Say

By Clare Foran

October 7, 2013

Compared with the cost of fossil-fuel-generated electricity, solar power isn't cheap. But it's becoming more affordable thanks to state and federal subsidies and competitive leasing and financing options. Add to this the fast-dropping price of photovoltaic panels and solar is starting to look like an increasingly cost-effective option for many Americans.

As the technology becomes more widespread, however, utilities are fighting harder than ever to stop solar in its tracks, and they see regulation levied through state governments as the way to do it.

A main reason why solar has become increasingly affordable and a major thorn in the side of power companies is a policy, now in effect in 43 states, called net-metering. Through these systems, customers with solar panels can earn credits for surplus electricity generated during the day. The credits are then sold back to the utility and used to offset the cost of conventional power production, which solar users must still rely on when the sun is not shining.

Net-metering has functioned as a kind of subsidy for solar power, and solar advocates want the policy to remain in place. Utilities, however, argue that now that solar has become more affordable, these subsidies should be scaled back or eliminated altogether.

According to Richard McMahon, vice president for energy supply and finance at the Edison Electric Institute, a trade association representing all U.S. investor-owned electric companies, utilities aren't entirely opposed to net-metering; they just want a change in terms.

"What we're concerned with primarily is the rate at which the utilities are expected to pay for the surplus power generated by consumers using solar panels," he told National Journal Daily. "That's what's known as the feed-in tariff, and these tariffs are set much higher than at market rates. These subsidies were put in place when solar was in its nascent stages but now it's outgrown the need for them."

In addition to pressing state regulators to revise the rates at which solar users sell back their electricity to utilities companies, EEI is asking state legislators to raise costs for solar customers. McMahon says this is because solar customers aren't paying their fair share for use of the power grid.

Solar advocates, on the other hand, say the subsidies are doing what they're supposed to do—make solar more affordable—and that they need to be left untouched.

"Earning a credit for the electricity that feeds back into the grid is only fair," said Will Craven, a spokesman for the Alliance for Solar Choice, a coalition of solar financing and electricity companies.

"Really what utilities are attacking right now is the customer's right to use less electricity," he said. "When solar was a boutique energy source that was only available to the wealthy, it was something utilities could tolerate. But now that solar costs have come down greatly, they are threatened by us because we represent really the first competition they have ever had."

So far no major regulatory changes impacting net-metering or feed-in tariffs on the state level have been enacted, but utilities across the country are pressing for change. Lobbying efforts are playing out in many state capitals, but McMahon said that in the future there could be issues relating to regulation of solar power and costs borne by utilities that need to be addressed by the Federal Energy Regulatory Commission.

What remains to be seen now is whether any of the proposed changes will go through and how they stand to alter the cost equation on solar if they're successful.

At least one solar expert thinks the impact could be devastating.

"I think it could hurt it pretty badly," said Andrea Luecke, executive director of the Solar Foundation, a nonprofit dedicated to promoting the expansion of solar technology, when asked how additional fees levied on customers using solar on a residential scale would impact the industry. "Do I think it will kill it? In the short term, yes. We're not yet at a point where we can compete without incentives or some type of support. If utilities win in this battle and effectively shutter residential markets, it's going to have a very dramatic effect."